Time to Exit your business and Succession Management

It is great when I get feedback from my Meaningful Moments and ideas for the next edition. So, thank you for the suggestions and keep them coming please.

For those business owners considering selling their business, it is a bit like buying and selling houses; it takes a lot longer than you think. Getting ready to start the process can be very involved. Finding the right buyer for your business is so important for the loyal employees you are leaving behind. Then’ all of the documentation you need to put together and the long drawn out intrusive process Directors need to go through. (Hopefully not as long as the process Manchester United are going through at the moment!).

My experience from an insurance perspective is geared to problems smaller brokers face to struggles and survive against an increasingly “big broker” focused market (i.e. struggling to get support), consolidation pace (big brokers are getting bigger and stronger) and the ever increasing compliance burden that can be overwhelming. I would also mention tax considerations. Apart from Corporation tax rises etc, you have Taper Relief changes coming next year.

If the owner is the key person and has not set up the business in such a way that it won’t run without him or her then the likelihood of a successful sale and continuation of the business is minimal. I have been involved with Employee Ownership Trusts in the last 18 months and it is evident that if the selling Director is only doing this for the tax benefits, then the likelihood of a successful business going forward is unlikely. Examples of this poor approach are where the new team are: –

  • Being told only a few days before sale
  • Getting no information/training on how to run a business (the founder basically disappears before sale
  • Valuation being absolutely top whack, with payment plan barely achievable
  • Interest added to, so disincentivising them string out EOT payments

If you’d like to consider selling to an Employee Ownership Trust and would like support from a team who have both “been there and done that” themselves, and have the technical knowledge to support the transaction, my friends at Go EO should be able to assist.

Most business sales rely on the business continuing to reach profitability or revenue targets for the seller to obtain their maximum sale price. The selling Director normally continues in some form of role to ensure this happens. This is always a difficult process as they are effectively “handing over their baby” to what is normally a corporate which might have different values from the seller. Decisions take a lot longer to be made and sometimes the corporate doesn’t understand the business or the special reasons why this business was successful.

My experience of successful exit strategies is to have an effective succession policy in place. If a company makes its plan too early, the new managers can get frustrated. So timing is essential. The quality of the up-and-coming managers is essential and whether they can step up to their new responsibilities and accountabilities. As you would expect, I have found individual coaching to be essential for this, so the future managers have the chance to discuss things in a confidential manner.

Difficult decisions often have to be made owing to the future manager not having the capability or maybe the resilience to stand up to the pressures of running their own business. Often too much management time is taken on the person who doesn’t fit for the future. Bringing through your own managers who you can trust to do a good job works the best.

If you are looking to exit your business and want to talk to somebody confidentially to bounce things off or coach your new management team, get in touch with neil@nvwsolutions.co.uk

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